Recession- We’re All In This Together

By Cliff Moore Jun 18, 2010

Jeb Bush Tax Proposal Flim-Flam

That famous philosopher and former New jersey resident Mike Tyson said, "Everyone has a plan until I punch him in the mouth."

So here's Jeb Bush's tax plan: eliminate a lot of tax deductions for tax payers such as you and I, including the deduction for property tax. How would that affect us? Not so well in New Jersey. According to the IRS in 2013, 41.4% of New jersey tax payers took a property tax deduction, nearly the highest percentage of claimants in the nation.

New Jersey property values are the among highest on average in the country. 100% of municipal services, especially schools, are paid from property taxes. That combination means New Jersey residents pay the highest property taxes in the country. Although those taxes, correlated by income, place New Jersey in 26 or 27 out of the 50 states for all state and local tax payments, including income, etc., by percentage of income, the Jeb Bush plan means Montgomery tax payers making an average $14,000 property tax payment will have to eat the deduction.

If you are in the 28% tax bracket, that means $3,920 less money to spent on frills like food and clothing.

Flash Drive9/24/2014

Just yesterday, I went into Radio Shack to buy a 4G flash drive, a mini-SD card I need as extra memory in my Nook. 2G would double my memory, and 4G would put it over the top. I went online to get an idea of cost: somewhere between $5 and $10, I thought.

But there was no joy at Radio Shack. 8G was the smallest they sell. The problem is, I can only use a small amount of extra memory as Nook OS chokes at a certain point. 4G was what I wanted, and 4G was what Radio Shack would not sell.

Just the week before the financial papers were full of stories about Radio Shack's eminent bankruptcy. Just a matter of time, was the general conclusion.

I couldn't help thinking: their refusal to sell me a 4G mini-SD card is related. You can't let your customers tell you what to sell. What would we know?

The Rich Get Richer Part 39/5/2014

Now that's a blinding glimpse of the obvious, a headline from the New York Times, Sept. 5, 2014.

How did that happen?

One way it happened was that wages remained flat for the past ten years while costs rose 15%. This has a primary effect on wage earners, not those whose income depends on Wall Street. While wage earners pay income tax rates exceeding 20%, those whose income is from stocks and bonds - and the trading thereof - pay no more than 15%. Consequently, total assets for the bottom 20% of American families declined by 21%, to $65,000. That includes savings, cars, homes, retirement 401k. The whole shebang.

For the top 10%? Up 2% , to $3.3 Million.

Furthermore, the Fed says that the average income for the bottom 20% of wage earners declined by 8%. For the top 10%, income rose by 2%.

So, if you think you're just treading water, it may be worse than you think.

Keep that in mind during the November Congressional elections.

Confirmed: The Rich Get Richer, the Poor Get, What?Nov 13, 2013

Us Census reports confirm the age-old saying, "The rich get richer and the poor get poorer," at least as far as New Jersey workers go. It also confirms another worrisome fact, that the middle class is shrinking.

Comparing 2009-10 figures with 2010-12, the first growth area is workers earning from $15K to $19,999. That demographic has grown 9% . The larger growth area is workers (is that really the right word for it?) earning more than $200,000. That group has increased by 12%.

The middle classes, those earning from $35K to $100K, showed a reduction in numbers, from 2% to 6%, depending, with the biggest reduction being workers earning from $40,0oo to $44,999.

Nationwide, unemployment is down to 7.2%, but in New Jersey it remains stubbornly at 8.5%, and more than 26,000 residents remain homeless after Hurricane Sandy.

Cost of Living Bump

Nov 6, 2013

NJ voters chose to increase the minimum wage from $7.25 to $8.25. There will be for the first time, annual cost-of-living increases.

However, the question remains, what should the minimum wage actually be? I fed the numbers in an online inflation calculator for the minimum wage in 1966, when I graduated from high school . $1.65. The answer was $11.92.

So yes, the voters did a good thing. But it wasn't the right thing by minimum wage workers, who simply cannot live on $8.25 an hour. Although they pay Social security and other wage deductions from their payroll, they won't be paying much income tax on $8.25 an hour, and will be eligible for huge federal support for Affordable Health Insurance, bringing individual costs to as little as $50 a month. At $11.92 an hour the so-called Obamacare supplements will be substantially lower at the Federal level. as workers making more will pay more from their own pockets for health care insurance.

The State Question which voters approved was widely opposed by business interests. But were they being short sighted? Economists who study wages report that business es employing minimum wage workers, especially restaurants, report an increase in business, perhaps because their minimum wage employees can afford to buy more of their own goods.

Why Medical Services Cost So MuchApril 10, 2013

In early April, Montgomery resident Barry Rabner spoke at a luncheon meeting of the Princeton Area Chamber of Commerce. Rabner, the head of the University Medical Center of Princeton at Plainsboro (does that name seem too long to write on a check?) mostly talked about the move from Princeton to the other side of Rt. 1.

Several interesting points were made, about the way patients are separately billed by the hospital, the physician, and by the other providers, such as radiologists and anesthesiologists. He says that the different providers are sometimes at cross purposes, but he cited an interesting story.

One evening, a man was home cleaning out his ear with a q-tip. The fuzzy cotton ball at the end of it got dislodged in his ear canal, and his wife felt she might only make things worse by trying to extract it herself. So they went to the emergency room at UMCP, had the cotton ball removed and gasped when they saw the bill - $900.

Mr. Rabner says that he got the call the next day at work from the recipient of their care. He said that it's always better to hear from an angry patient than from someone identifying himself as a "family member," but that's another story. This time, he said, they wanted to know, "Why did it cost so much to pull out a q-tip?"

Rabner explained that its not just the simple extraction; they have a new facility costing $500+M, and the clock is running on the mortgage. But also, they have a state-of-the-art radiation treatment machine, state-of-the-art CAT, MRI and X-ray equipment, all mortgaged to the hilt; X-ray technicians, surgeons, cardiologists, nurses, ear specialists and so on standing by, all with the clear expectation that they will be paid for being there no matter what transpires. Even if the emergency room got no business at all that night, things have to be paid for. That's one simplified reason why medical care cost so much, and so far, there are few ways around it, other than insurance. The $900 would be the price paid by an uninsured person. Those who have insurance, such as Medicare or something from a private company, co-pay far less than that.

Is there a better way? Not yet.

A Sandy Hook CT Solution

Jan 3, 2013

In response to the recent tragedy at the Sandy Hook School in Newtown, CT, the head of the National Rifle Association proposed in all seriousness that a police officer with a gun be stationed at each school in America. There are 300,000 schools, thus 300,000 police officers would be required for this purpose. As there are currently 800,000 police officers in America, this would require hiring new police officers. Since average costs for police officers varies considerably from state to state, let's suppose for this argument that it is $75,000 per year including training, salary, benefits, uniforms, and so on. "So on" includes such intangibles as locker space at police stations, which would suddenly have to be increased to account for 37.5% more staff, and more patrol cars. Also, such intangibles as more superior officers at six figure incomes to supervise these hires. So: 300,000 times $75,000 equals $225 Billion. I know I feel my grandson, who, at age 6, is the same age as many of the victims of that tragedy, would be safer if we apply that easy, simple remedy After all, it's only money.

Tax That Guy Under The TreeNov 30, 2012

A front page story in the New York Times notes that most Americans are paying less tax than in 1980, and by that they mean a total of federal, state and local taxes. Moments after reading that, I downloaded my emails and saw several receipts from Barnes and Noble for books downloaded to my Nook. Among the items was one for tax, at 7%. This will be a great boon for the State of New Jersey if all internet purchases were taxed. Initially, the idea was to encourage internet sales by exempting them from state taxes. The result is eBay and Amazon, among other giants threatening Main Street America and the old business models. Between the two of them, they have more cash on hand than the US Treasury.

Amazon is opening a warehouse near in New Jersey. They have offered to charge tax for purchases by their customers. This is a good thing and way overdue.

One note: Gov. Christie did a great job following the recenty Hurricane, snow storm and earthquake. What a month! He finally remembered (and just before the election, too, which took real courage) that we need him here in New Jersey, not galavanting around the country.

Speaking of hurricanes: It's an ill wind that blows no good. Damage estimates are for $39B in New Jersey. There's another way of looking at it: NJ will be getting $39B in stimulus spending, much of it from insurance companies. Even those municipalities with holes blown in their budgets will get back up to 75% of storm-related expenses from FEMA. This is a golden opportunity to look at overdue fixes to State infrastructure as well.

This will mean full employment for every nail-banger between Cape Cod and Cape Henlopen.

The New Jersey ComebackSept. 19, 2012

Governor Christie (does the man spend any time in New Jersey at all?) has stopped using the term "New Jersey Comeback" in his public appearances, many of them out of state; he now refers to it as "Christie's Middle Class Reform Agenda." Following the Battle of Waterloo, Parisian pundits did something similar when they said, "The Emperor no longer advances from strength to strength."

The "Comeback" included several interesting items, such as the on-time transfer of more than $500M to plug the many yawning gaps in his $32B budget, the borrowing of $245M to cover transportation costs that he previously said would be paid out of cash, as well as rising Medicaid and pensions costs to be paid from underfunded accounts.

His response to those who beg to differ with his rosy, optomistic forecasting, such as David J. Rosen, director of the Office of Legislative Services, a non-partisan office, is to call names. His ever elegant response to Mr. Rosen, who pointed out, as his job demanded, that revenues would be likely to be short by $254M, was to call him the "Dr. Kevorkian of the numbers." Those numbers show a 9% decline in corporate taxes.

But wait, wait, there's more. Part of the "comeback" is rising unemployment, now up from 9.1% to 9.8%. Only California, Nevada and Rhode Island are worse. Some of the unemployment is from laid-off state employees. Others are unemployed Big Pharma workers, whose jobs have disappeared forever, as that sector has contracted.

The corollary to unemployment is rising foreclosure rates. Because of differences in the way the NJ judiciary looks at foreclosure (NJ judges really do want to see all the paperwork), underwater, unemployed homeowners, unable to sell their homes, are only now beginning to get turfed out by the courts. The result is that NJ has the second highest foreclosure rate in the country, at 12.7%. Only Florida is worse, at 17.5%. The difference is that Florida's rate is declining, and New Jersey's is getting worse. Some comeback.

Consequently, Standard and Poor has lowered New Jersey's credit rating for a second time. The Governor's response to our woeful state economy is to ask for 10% across-the-board tax cuts.

Much of LittleSept 17, 2012

In this cloud-cookoo world of pre-election politics, much has been made of little, rhetorically speaking. But not much has been said about what some economists are saying is actually a big success: stimulus funding.

In fact, in a book called, "The New New Deal," author Michael Grunwald says that stimulus funding, derided by Republicans as a failure, and oddly ignored by seemingly embarrassed Democrats, is actually a stunning success, and the numbers prove it.

He says that 2.5 million Americans are working because of stimulus funding, that it kept the economy growing at a 3.8% rate, and unemployment under 12%. Grunwald says that this is why President Obama claims that Americans are better off than we were four years ago, and I believe he's right.

So far $840 billion has been spent. $1.5B went for rent subsidies and emergency housing to support 1.2 million people. Seven million benefited from food stamps, unemployment benefits and Medicaid, which we are told, some politicians want to end as "wasteful." Some of these same politicians deride unemployed Americans as "slackers" who, they say, don't really want to work. Really?

$1B went to pharmaceutical companies, many of them centered in New Jersey, to fund cost-effectiveness studies of their products. Thousands of out-of-the-way communities, which wouldn't have gotten it from a free market economy, now have broadband coverage, benefiting all of their residents. Locally, Princeton Airport received a grant to upgrade their fuel storage tanks, and thousands of miles on New Jersey roads have been repaved, a long overdue job. $90B went to solar and wind power projects, such as the ones contemplated offshore in New Jersey. Some might call that socialism, but so what? Anti-Obama forces instead bloviate about one failed project, Solyndra. Green energy output, we are told, has doubled anyway. If it ran on hot air out of Washington, it could have tripled.

Yes, New Jersey unemployment has risen from 8.1% to over 9% and Governor Christie no longer speaks of a "New Jersey miracle," but meanwhile, millions of us are still working because the success of a program begun, in all fairness, under President G.W. Bush, and continued and expanded under President Obama.

Maybe people should call it the success it is.

Taking Out The TrashJuly 12, 2012

I'm on vacation on Martha's Vineyard nowhere near a beach in a cluster of homes located well off the main roads, near Edgartown. Early on Tuesday morning, the trash hauler picked up our trash and all was well, until Thursday, when I saw that our neighbor's home, some 100 or so feet away, had their trash picked up by a different trash hauler. Is this an efficient system? I wondered.

In a more efficient system, one trash hauler would pick up for both homes, an entire neighborhood, or even, as in Rocky Hill, pick up for an entire town, using mechanized equipment, standardized trash containers, and so on. The cost for the hauler would be reduced and cost savings are passed on to the consumer.

In the real world, municipalities tend to off-load such municipal services onto the homeowner, who then has to negotiate with the hauler for services. Negotiate – hah! It wouldn't matter if your neighbor has the same hauler, you will still be charged whatever rate the hauler can get away with. Or, you can look around for a better deal.

In the old days, trash haulers would informally (or otherwise) divide up areas into turf which they would guard jealously against any entrenchment by competitors. The local DA's put a stop to that, more or less. It wasn't efficient for the consumer, because the haulers had colluded to charge whatever they felt like charging, with no regard to real costs or competition. What competition? A competing hauler would never dare collect on another hauler's turf or risk getting his tires slashed - or worse.

In Rocky Hill, trash pick up is a municipal service, paid by property tax. The Borough negotiates the best deal by bid for town-wide pick up annually, and the happy taxpayer pays for it through his property tax. The hauler uses efficient pick-up techniques (standardized trash containers, single-operator, no helper, modern trucks, trash compactors, etc.); the taxpayer enjoys a lower fee per year than he would otherwise. Once a week (twice a week during the summer) it gets picked up, and the cost (please correct my memory if I'm wrong) is about $120 a year per home, paid through property tax.

In Montgomery, on the other hand, the system works about as it does here on the Vineyard: your neighbor may very well have a different hauler, operating on a different schedule (mine is once every two weeks in the Township).

So, how is it different if the consumer pays for trash pick-up through a tax or pays for it over the open, supply-and-demand market? In practice, supply and demand costs more. My trash pick-up in the Township is about $282 a year, for two pick-ups per month, paid by check to the hauler, not through property tax.

Elected Township officials virtuously claim that they have lowered your taxes, and yet somehow, you pay more for the necessary services they don't or won't provide. After all, we all need to have our trash hauled away. There's no shortcut here, unless you take your own trash to the dump, and good luck with that.

Think of that as you think of the arguments being raised for and against Obamacare. So what if the Supremes call it a tax, or if it's called a penalty or a user fee, or whatever? Using more efficient economies of scale can lower costs, if done correctly and wisely, and you have no further to look for proof of that than your own trash can..

How Are We Doing?

June 11, 2011

Governor Christie has been traveling the country lately, bragging about his many accomplishments at turning around the state economy and letting the taxpayers keep more of their money. How's that been working for us?

If the Governor ever returns to NJ, he will find, according to published reports, that we are 47th from the top of the 50 states in recovery. Thats right: worse than all of them except for Alabama, Mississippi, and Wyoming. Furthermore, the state unemployment rate is 9.1%, compared to a national rate of 8.2%, which is up from 8.1%. There's glory for you. Well done, Governor Christie! That's showing the country how to fight the Great recession. Bravo!

Some Bad News - Or Not.

May 19, 2012

How's the economy doing? Well, according to the Dept. of Labor, nationwide , unemployment is 8.1%. In NJ, however, it rose in April to 9.1%. Also, NJ now appears to have the second highest number of homes in foreclosure, which may actually mean that the rest of the country is recovering more quickly than we are - many of those lost jobs are in pharma and government, and those jobs aren't coming back anytime soon. Meanwhile, as Europe tetters on the brink, other signs look good - nationwide more people are at work and people are spending more.

Some Good NewsFeb 17, 2012

Do you like apples? How do you like these apples? The Mortgage Bankers Association reports that the number of delinquent mortgage loans nationwide has dropped during 4Q 2011 to 7.58% from 7.99% during the previous three months. In 3Q 2008 , it was 6.99%. The delinquency rate peaked at 10.1% in 1Q 2010.

This is good news and a marker that recovery seems to be real, though slow. New Jersey ranks #20 in the country for delinquent mortgages, with an overall delinquency rate of 8.5%, which is roughly the same percentage of unemployed NJ workers who are looking for work.

Another marker is the price of gas: I just paid $3.43 a gallon, up from $3.10 a gallon. Economists are predicting $5 a gallon by the end of summer. How is this good news? Because gas prices are a function of supply and demand: the more the demand, the higher the prices. Oil wells, we are told, are pumping at full capacity, and we compete in a global market for a declining share of a necessary comodity. Demand is rising as more people drive to work, and more goods are shipped. Enjoy it while you can.

The $0.44 Problem

Feb 3, 2012

The New York Times reported on Feb. 3, that according to the Commerce Dept., of every dollar earned in America during the third quarter of 2011, only 44 cents went to worker's wages and salaries. They say it's the smallest amount since record keeping began in 1947.

The government also says that the effective taxes charged US taxpayers is the lowest it's been since 1950.

So, who is getting that 56 cents? Not me. But somebody is, and it contributes to the sense of income inequality that has occupied political discussion lately.

Meanwhile, some good news: Unemployment is down to 8.3%, with 243,000 new jobs added during January.

The Margin Call

Nov 23, 2011

If you have been trying, like so many of us, to imagine what was going on in Wall Street as the market tanked in 2007, I can recommend seeing the movie "The Margin Call," staring Kevin Spacey and Jeremy Irons, among others. This is an incredible movie, more about acting than movie making, in which the characters live through a 24-hour period in which their company - think Sherson Lehman - discovers to their corporate horror, how over-extended they have become and how few their options are. Using mortage instruments as a media for their own destruction, they learn what the audience understands, just what it is they have done. None of the characters are bad people or evil people. But they've grown used to the big bucks, the perks, the helicopter trips and the limousine rides home, and it all unravels. It's kind of like seeing a slow motion train wreck, or the Titanic disaster from the viewpoint of the captain. Bracing. I recommend it.

The Price of GasOctober 5, 2011

If anyone is wondering how we're doing, they only have to look at the price of gas; in some parts of the country, regular is below $3.00 a gallon for the first time in a very long time. In Kindle Park, where I just filled my tank, it was $3.24. Ten days earlier, it was $3.38. This is not a good thing.

Why? Because economists have been arguing that the easiest marker of our economy is the price of fuel. The price of gas is the result of supply and demand. Supply, we have been reliably told has been more or less steady in recent post-Katrina days, even though Americans now compete in a global market with India and China for oil.

So, if the price is down, that means the demand isn't there, another sign that business is off and likely to stay that way for some time.

If all else is equal (it rarely is) and prices head north, then look at that as a sign of recovery.

Recession of 1937Aug. 8. 2011

Google "Recession of 1937." When you have read it you will know more than our current Congress knows about why the economy is tanking. As a consequences, Congress has earned the lowest rating, at 8.2%, that it has ever had since records were kept more than 40 years ago. It's a lower approval rating than BP had during the Gulf of Mexico oil well blowout. They earned it.

This double dip phenomena is the result of continued chronic unemployment, nominally at 9.8%. The real figure, some say, is closer to 15% and is the result of unemployed workers who have been unemployed beyond their benefits and have thus disappeared from the statistics.

Forget the national debt, which the Tea Party pundits say is the biggest threat to America: there can be no doubt that real recovery will not happen until more Americans are back to work at real jobs.

If you know that, then you know more than your average Congressman.

45.753 Million Americans Now On Food Stamps

August 5, 2011

The term dead cat bounce is based on the old saying that "Even a dead cat will bounce if it falls from high enough." A couple of years ago some economists had been predicting a shallow recovery if nothing else happened. Now they are saying it will be "W" shaped, with a much longer recovery as a consequence of Washington's political posturing, not to mention the fact that the Great Recession is world-wide and we work, live and sell to a faltering global economy.

If anyone wants evidence that we are about to experience the "dead cat bounce," they have only to look at the latest numbers from Washington: 45.753 million Americans now depend on food stamps - up a whopping 2.5% from last month. Furthermore, the unemployment figures are stuck stubbornly at 9.8%.

Why is that? First of all, because record numbers of baby boomers have lost their jobs and are not likely to find new ones as employers prefer hiring younger employees. Even though some of these baby boomers have found a "safe" haven of sorts by aging out into Social Security, the numbers of middle-aged unemployed workers is so enormous and jobs for which they are qualified so few that many of them have been forced out of their homes - witness rising forelosures. Some say that for every open job there are ten people looking for work.

Last year, despite the fact that 8% of its income is from undocumented aliens who cannot withdraw from it, the Social Security system for the first time paid out more than it took in. Think about that.

Secondly, one of the largest groups of unemployed are former public sector workers, such as the 4,000 FAA workers "furloughed" when Congress passed its cheesy, inadequate, short-sighted, and ultimately worthless solution to the worst economic crisis since the Great Depression. Hundreds of thousands of local, state and federal jobs have been eliminated, not to return (at least not to return in the lifetime of those employees).

The consequence is 9.8% unemployment. What does this mean? Those unemployed workers will no longer be paying taxes into the system. Instead, they will be lining up for food stamps - witness the 2.5% surge. They will also be lining up for Medicare and Medicaid in record numbers, as older unemployed workers tend to have more illnesses than younger workers. They will not being stuff, even cheap stuff made in China the way they had been. All of this will cost taxpayers more in the long run. But, as they say, in the long run, we'll all be dead. Someone should tell that to Congress, which today's Doonsbury cartoon called, "surprisingly affordable."

Some of our local Congressmen have been sending self-congratulatory emails to the press for having passed this legislation. One such message assured readers that the consequence of this legislation is that more Americans will find employment. Maybe we should vote them out.

What’s Mine Is Mine And What’s Yours Is Mine

May 10, 2011

Much has been said over the years, God knows, about taxes in New Jersey. At every election the voters – and taxpayers generally - are told how awful our taxes are. In particular politicians tell us with tones of shocked horror mingled with pity, that we taxpayers are paying the highest property taxes in the country. Just imagine!

And yet, they seem to have left something out. They’ve left out the part were they’re supposed to tell us that NJ is the only state in the country in which 100% of municipal services – including schools - are paid for by property taxes. They also leave out the part where they tell us that NJ is generally the highest income state in the country, with consequently higher real estate costs. How could we not be paying high taxes?

Actually, according to economists who have studied it, when all state taxes, including income tax, property taxes and the myriad excise taxes, are added up and compared to taxpayer income, we actually are only 23rd highest out of the 50 states, solidly in the middle. And yet the myth persists because, unlike taxpayers in other states, we get our tax bill in one nausea-inducing bill. And will someone please tell me why in the world should I be paying more sales tax for a Big Mac than I would for a $2,000 mens’ suit?

The basic problem seems to be the issue of Home Rule, one of the oddities of NJ governance. No other state seems to have it to the degree that we do. It accounts for the fact that we have far more school boards than we have towns and cities. Home Rule exists for a reason lost in the mists of time (but Google “Horse Neck Riots of 1734” if you want to know where it started). But the key consequence of Home Rule is that municipalities raise revenue from property tax, with increases capped at 2%. The State, in turn, raises revenues from sources as varied as income tax, the second lowest gasoline tax in the nation, taxes on telecommunications, business taxes, gambling taxes and so on. The difference is: the state keeps what they have levied and whimsically grants amounts which vary from year to year to municipalities to be used for schools, fixing roads, or whatever.

Towns such as Montgomery and Rocky Hill submit budgets to be approved by the Dept. of State. Any municipality that has been well run, with low debt and a nice surplus, will often pay for its competence by seeing less Municipal Aid from one year to the next. But who knows, maybe, for no given reason at all, they may, as they have done in the past, actually grant more in one year than they did previously. It happens. There doesn’t appear to a reason. There’s whimsy for you.

Unfortunately, the 2% Cap is applied to the amount raised by the property tax levy: if Montgomery got by on a total budget of $100 last year, for instance, $20 from the State and $80 from the taxpayers, the cap is applied to the $80. So, if this year, the State only grants $15, the taxpayers will still have to cough up $80 plus 2%, or $81.60. The Township would have to get by on $96.60 instead of $100, and the taxpayers will still see a tax increase. Furthermore, the State will want to see that the Township has spent its surplus before it approves the budget at all.

In the other words, the State operates on the principal, “What’s mine is mine and what’s yours is mine.”

Other states with lower property tax rates use systems in which state revenues are earmarked in definable ways. Schools, for instance, are generally run by a county-wide school board, and paid from municipal property taxes, county property taxes, and state funding. Typically, states with income taxes receive 60-65% back from the state, to be applied to the schools. In New Jersey, towns such as Montgomery are lucky to get as much as 30%. Even so, each year it seems to be less money back than taxpayers pay in. The result: property taxes don’t decline, but services as mundane as pothole fixing have suffered.

When mayors and town managers brag that they have kept taxes flat they are more often than not, making a virtue of necessity. They keep taxes flat by cutting services because the state gives them no choice.

How can this be fixed? The current system can only be fixed with a constitutional change. It seems unlikely that anyone in Trenton has an appetite for such a thing, which requires courage, commitment, and skin a lot thicker than our current governor has.

So, what we will continue to see is the ever appalling spectacle of our legislators, grown men and women, rearranging deck chairs on the Titanic, all the while decrying our ruinous property taxes, while doing nothing of substance to change a system which has failed us.

If It Aint’t Broke Don’t Fix It

Jan 23, 2011

When My Aunt Alice was buried 20 years ago, there were about a dozen or so Atco Township police officers milling around the funeral home. I learned from my cousins that they were there because they had all been her students when she taught third grade and wanted to honor her for that. How do you quantify a teacher with that kind of lasting moral authority and social impact? There seems to be no better standard than life itself.

What brings this to mind is the latest maunderings from Governor Christie who has now declared war on tenure for teachers. This is a popular and perennial sport among politicians, and I can only guess at it’s source; perhaps they had in mind some long-ago well-loathed incompetent, lurking in some miserable Dickensian brick-pile from their miserable, long ago youth. Who knows? The governor says it’s a cost-saving measure: after all, why should taxpayers pay for poorly performing teachers?

This all sounds like part of the governor's "Race to the Bottom," which features such items as dumbing-down state requirements for school superintendents so that anyone with a BA or BS degree in any subject, with no experience at all can now become a superintendent of schools. Is this a great country, or what?

Among the statistics in the latest report card from the NJ Dept. of Education, is one listing the number of students in need of “Individual Education Programs;” some 13% of Village Elementary Students have been classified as such. How can this be?

Under the governor’s scheme, one supposes, any parent making enough noise could declare a teacher incompetent and start the process of having that teacher removed without any other cause at all. Imagine if the parents of all those children got together and decided that there must be something wrong with the teachers at VES; imagine if even one were politically connected enough to have someone fired, all without any more authority other than the idea that if their child fails to perform, it must be the teacher’s fault; someone in the school system has to be at fault or why else are we paying these ruinous taxes? And so it goes.

God knows, my wife and I have had issues with a teacher or two in the past in MTSD (still teaching, probably, alas). Our son survived her very nicely, and is now serving in Afghanistan with the Marines. But my father taught high school as a 19-year-old graduate of Glassboro State Teacher’s College before WWII, three of my aunts taught, my wife was a teacher, and two of my cousins are teachers. They all had their share of poorly performing students, I'm sure. Why should any of them be held hostage to this grandstanding bully, who would rather break a state school system that has produced some of the finest (and highest testing) graduates in the country just so he can appeal to his red-blood base and get re-elected?

Guess what: this is why tenure exists; it’s for the same reason that Civil Service exists. It’s to protect hard working public employees from the malice and depredations of politicians with a grudge during an election year. So I’ll say what I learned in grade school: if it aint’ broke don’t fix it.

Whiskey Rebellion ReduxJan 14,2011

I own an old end table, purchased by my mother (who grew up in Pennsylvania) probably for $10 or less. Old and made of pine, it isn’t much to look at. It was, however, said to be from the home a “Whiskey Rebellion supporter,” something I never gave a second thought to – until recently.

The Whiskey Rebellion was the first real test of whether or not America would stand as a nation, and was what Thomas Jefferson, otherwise a maze of contradictions, may have had in mind when he said, “The tree of liberty must be refreshed from time to time, with the blood of patriots and tyrants.” He wasn’t just whistling Dixey. He meant it.

When the Revolutionary War ended with the Treaty of Paris in 1783, there was a short period of some economic prosperity, but also, lots of questions, such as, how would our new nation support itself? In particular, how would the government pay off debt incurred from the war? Primarily, the budget came from import and export duties. However, another solution was an excise tax on whiskey, earmarked to pay for war debt.

Early Americans, it is safe to say, were hard drinkers, consuming alcohol in the form of whiskey, rum, and cider in vast amounts. This was often because drinking water was considered with good reason, to be unsafe. For many years, Philadelphia had period cholera epidemics caused by drinking polluted water. In many rural areas, farm workers would seek employment elsewhere unless they received hard cider as part of their daily fair. It was the only thing safe to drink.

One problem was that the tax was on whiskey, not rum or cider. Although there were import duties on molasses, rum was a staple of the three-way slave trade, and benefited New Englanders, chiefly. Cider was grown from apples everywhere, but generally for home consumption. Whiskey, however, was made from grain or corn, generally surplus at the end of summer. Farmers would make whiskey as just another cash crop. However, even though George Washington himself ran one of the biggest and most successful stills in the country, it was western farmers who benefited primarily from this trade – and who would pay the tax -- if the government could get it.

Consequently, when the government, George Washington presiding, passed a whiskey tax in 1790, it was westerners who rebelled. They thought the tax was unfair and that it singled out westerners to their disadvantage.

To many Americans the idea of paying a tax which would not directly benefit one’s self or which would benefit another, was alien. Hadn’t they just fought a war over that same thing? Western Pennsylvania in 1794 was then the Wild West, and whatever went on the East had little to do with them. They refused to pay the tax and were happy to tar and feather anyone who attempted to collect it.

This came to a violent head in 1794, when a party of some 500 armed men marched on the western Pennsylvania home of General John Neville, the tax inspector. Neville and his supporters responded in kind, killing one protestor, driving away the rest. The next day, a larger crowd, supplemented by a number of soldiers from a nearby fort, returned. The leader of the “insurrection” was killed, along with a number of others before they were driven off. However, on August 1, 1794, a gathering of some 7,000, an enormous crowd in those days, met at nearby Braddock Field. These men, in a day when only white male landowners could vote, were mostly not landowners, and few of them owned stills.

They were an angry, disaffected mob, with an acute sense of just how little political power they had, and an excellent sense of how good times had passed them by. Sound familiar?

What they wanted was to march on nearby Pittsburgh, loot the homes of the wealthy, and burn down the town. Meanwhile, the US government, then temporary meeting in New York, responded by sending soldiers with a writ to collect the tax, and a list of some 60 names of those who had refused to pay it. By the time they arrived, however, the mob had run out of energy -- or whiskey -- and had vanished. But not their anger or their feeling that one part of the country was getting one over on the other part of the country.

This sense of angry embittered grievance never left America. Jefferson prefaced his “tree of Liberty” remarks with this: “God forbid we should ever be twenty years without such a rebellion. The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is lethargy, the forerunner of death to the public liberty. ...And what country can preserve its liberties, if its rulers are not warned from time to time, that this people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to the facts, pardon and pacify them. What signify a few lives lost in a century or two?”

Did he really mean the life of a nine-year-old child, shot dead in Arizona? Did he really mean the vast slaughter in the American Civil War, an event William Faulkner said, “wasn’t the past; it’s not even over.” Too right, when demagogues such as Sarah Palin and other employees of Fox News post website photos of political figures with gun sights superimposed, and speak of “real Americans” taking back their country.

Footnote: when Jefferson became president, he had the Whiskey Tax repealed.

The True Cost of the 12 Gifts of Christmas

Dec 24, 2010

Much has been said about Christmas over the years. Far more will be written, alas, but may I draw your attention to the 12 gifts of Christmas? These gifts are 12 drummers drumming, 11 pipers piping, 10 lords a-leaping, 9 ladies dancing, 8 maids-a-milking, 7 swans-a-swimming, 6 geese-a-laying, 5 gold rings, 4 Colly birds, 3 French hens, 2 turtle doves, and a partridge in a pear tree.

A close reading will reveal what any mathematicians (or economist) will be happy to point out, that there is a mathematical progression: on each day, the happy recipient gets what she has been given the day before, plus one additional gift. This is an extreme form of compounded interest familiar to anyone who has worked the “penny a day” scam, in which the worker gets 1 penny for his first day of labor, but twice that on his second, then twice again on his third, and so on. Before long he’s raking it in like a hedge fund trader. But I digress.

The question is really, what would it cost today for these gifts and what would it have cost a few years ago?

PNC Wealth Management set its team of highly compensated economists to work and came up with the number: $23,439.38 – but that’s just for the 12 gifts. For the actual number, which includes the cost 12 partridges, 12 pear trees, 22 turtledoves, and so on, the actual price is $100,000, a number only a hedge fund trader could afford.

Interestingly, the PNC economists have tracked the prices over the years, and note that this year’s increase, some 9.2%, is largely due to the price of gold, as well as the extraordinary rise in the price of birds: French hens would have cost $45 ($15 each) a year ago. This year they would cost $150, a 232% increase. Also, turtle doves have risen inexplicably, some 78.6%.

They note that the previously highest annual rise was 16% in 2003. Someone should get to the bottom of this before Christmas becomes altogether too expensive and goes the way of many another forgotten holiday.

Pennywise and Pound Foolish

Dec. 1, 2010

We posted a poll on our website during early fall on the question of Governor Christie’s cancellation of a number of projects within the State. Out of 54 voters, 81.5% clearly approved of his actions, which in all fairness, we didn’t list.

One project in play at the time was his cancellation of an additional tunnel under the Hudson for commuters. Currently the two in use are operating at 100% capacity. Any little thing – snow or other bad weather, electric problems, accidents – and commuters are backed up for hours. The new planned tunnel, called ARC, would have eliminated those delays.

Why was that important? Because commerce is two-way; it’s not just about New Jersey commuters traveling to jobs in New York. It’s also about employers turfed out of New York by high real estate costs (not such an issue this year, but next year?), who may be bringing employees from New York to work at jobs in New Jersey. The governor cancelled the project, which had been in the works for 15 years, and which has cost the federal government $600M so far. He cancelled it because, he said, rising costs would have put New Jersey taxpayers on the hook for an unknown amount of money: it hade been in the neighborhood of $8.7B, but new estimates were around $14B, and possibly, rising. So, he cancelled the project.

New Jersey taxpayers just got the bill: $271M, due by Christmas Eve, 2010. With interest.

This is a new category of “pennywise and pound foolish,” and adds to the list of lost opportunities. First there was the $400M “Race to the Top” funding lost due, in part, to his intransigent grandstanding with the NJEA.

Second, just revealed days ago, was a further $14M lost in the form of grants to school boards to make up money cut from State Aid. Since MTSD had $1M cut from State Aid this past June, anything additional would have been a great help.

What no one knew in August, when the “Race to the Top” story first broke, was that the Governor had already been informed that the state lost the $14M aid to school districts. They embargoed that interesting tidbit. It might have made him look bad.

I wonder if the voters would approve if they knew that actions by the Governor have cost New Jersey taxpayers $685M so far.

Another Look At The Greater Fool - Sept 27, 2010

Much has been written in the financial pages of the popular press about the mortgage derivatives debacle to give the impression that the ratings agencies at some point fell down on the job, thus permitting people who should have known better – bankers with hearts of stone – to bet the wrong way on pools of mortgages clustered together and quickly resold. “If we had only known,” they cry, “we would never have invested in these worthless financial instruments. But we didn’t know!”

Not necessarily, as it happens. Instead, the Financial Crisis Inquiry Commission – I’ll bet you didn’t know there was one – has been holding hearings, and lately, D. Keith Johnson, who ran a company that analyzed 911,000 such loans during the period of January 2006 through June 2007 from 23 banks, says that more than half of the mortgages they randomly studied were fatally flawed. He says that he took this data to Standard and Poor’s, Fitch Rating Systems, and Moody’s Investors Service, companies that have lately developed weasel-speak into a fine Orwellian art.

He says only 54% met whatever standards the lenders ordinarily would use for underwriting loans no matter what those standards were, and that 28% were loans that were described as “failures,” unable to meet any known underwriting standard. Of this total amount, 39% were dumped into a pool and resold to investors despite the sure and certain knowledge that they would, sooner or later, blow up. In an article in the New York Times, the pool of loans Johnson’s company looked at represented only 10% of the total number of mortgages made during the 18-month period, which it had been paid to look at.

Nevertheless, the banks seemed to have relied on the “greater fool” theory – the idea that, yes, a certain thing is likely to blow up, so dump on the greater fool, who, in turn, can dump it on a greater fool than he is before it explodes.

So, it exploded.

Don’t let the facts spoil a good story - July 31, 2010

Part of Governor Christie’s agenda for New Jersey has been an argument that public sector employees – state, county, local – are grossly overpaid when compared with private sector employees. Because they are so overpaid, he says, the state is broke. He has, in the process, cited salaries among teachers, including well documented six-figure retirement pay, as an example. He said during a speech in April, “There are two classes of people in New Jersey: public employees who receive rich benefits, and those who pay for them.”

But is it true? Or can he be, one hates to ask, in error?

According to a study released by Jeffrey H. Keefe, a Rutgers professor associated with the School of Management and Labor Relations, salaries and benefits are about the same among both groups. Public sector employees average some $56,694 per year; private sector employees average $61,252. The difference evens up when benefits are accounted for. Public sector employees pay some 7.4% of income for health benefits. Private sector employees pay some 11.4% of pay for the same benefits.

What many taxpayers have become sensitized to has been the declining number of employers who provide health benefits and contributions to 401k programs. "If I have to pay this much," they reason, egged on by Tea Party blogosphere blowhards and talk radio, "why shouldn't those public workers with their huge paychecks, pay more out-of-pocket?"

Self-aggrandizing politicians of the opportunistic sort, especially those with little else to contribute of any value to man nor beast other than a kind of whining noise and schoolyard bullying, have always been quick to seize on private sector ire on any issue, particularly when it gets votes.

Governor Christie’s spokesman, Kevin Roberts, insists that despite this latest report, “The fact that public sector benefits are out of proportion with the private sector in New Jersey is just not disputable.”

But it is disputable, by real numbers studied by people who actually know what they're talking about. Governor Christie isn’t the first politician who wouldn't let facts get in the way of a good story, especially if it gets him elected. He’s just the latest, alas.

Thomas Edison Makes the Cut - June 24, 2010

One cost-cutting proposal from Governor Christie called for Rutgers to take over Thomas Edison State College. This idea did not make the cut in the latest budget proposal. That’s a good thing. If it ain't broke don't fix it.

Thomas Edison State College is probably the finest thing in New Jerseys’ constellation of State and community colleges. It has been the gold standard of “long distance learning” since they perfected it shortly after the first personal computers hit the stores.

Begun during the early 70’s, its charter was to allow adults to permit experience and training acquired over a lifetime to be turned into college-level credits. They based it on Thomas Edison himself, who never went past grade school in formal education, yet knew a few things, or so they say.

For instance, a person who worked as a photographer could surely claim after years of working in a darkroom, that experience could be equal to photography courses taught in a college someplace. The only question was: how many credits, and how to quantify it. Thomas Edison State College figured out a way: they used standard tests, interviews and other documentation to allow adults to claim credits for real skills, real information, and real learning. They did this decades before anyone else did.

Many of its graduates are military personnel, state employees, and ordinary working folks who were trained or learned on the job. Most of them were interested in business related degrees; many of them worked for MBA’s, and other business and management degrees. But I also remember a an artist from Princeton, Rex Gorleigh, who received a Bachelor of Arts in fine arts from Thomas Edison State College while in his 70’s.

Somehow, merging this unique institution into something as prosaic as Rutgers would elevate the concept of “penny wise and pound foolish” to that of “throwing out the baby with the bathwater.”

What makes this whole process of budget cutting among the state schools even more dismal is that so many unemployed NJ workers have turned to the state schools for additional job training at just the time when their budgets have been hacked to the quick. RVCC reports record numbers of new students, yet less money to pay for teachers and support.

If the Governor is really interested in creating jobs and getting NJ residents back to work - and he says he is - then he could start by giving more money to our institutes of higher education, especially community colleges overwhelmed by applicants, rather than cutting their funding.

80 Times Smarter - June 18, 2010

The other day, my wife and I were having dinner at a Princeton restaurant and we overheard a couple talking at the table next to use. He was discussing the BP oil crisis, and in particular, the treatment Tony Hayward, their chairman, was getting from Congress. He said that it was disgraceful, and that Hayward was “80 times smarter than them.”

I held my tongue, but I thought about it, and decided that it may be so, but so what? It’s true that Congress is peopled, as ever, by thieves, liars, opportunistic grifters, and sociopaths, a few of them actually demonstrably dumber than a bag of hammers, but it’s been ever thus. Was it Mark Twain who said, “America has no native criminal class, except when Congress is in session?”

But the BP hearings shed some light on why they pay these corporate types such big bucks. I’ve always held that there was a serious disconnect between the salaries paid corporate CEO’s and the salaries paid to the working stiffs. At the end of WWII, it was 40 to one; a few years back it was 400 to 1. The head of Blue Cross in NJ, for instance, is said to be taking home $8.7M this year.

Why is that? It may be that they pay them those big bucks so that when their company is caught screwing up - I’m assuming that every company screws up, but not many are caught, and few so spectacularly as BP, although J&J seems to be working at it, lately - they can throw someone under the bus with a clear conscience.

Tony Hayward is BP’s man. He may be smarter, but he’s the goat, and when it’s all over, he’ll get the chop and go home with a whole lot of money; unloved and unwanted he may be, abused by his lessers, covered in tire tracks, his company a smoking, bankrupt ruins, he’ll still be far, far richer than you and I will ever be. It’s the way of the world.

Too Much or Too Little? May 12, 2010

Can it be that we may be paying too little in taxes?

There’s a thought, and yet, according to a USA Today study, Americans (not necessarily in NJ) are paying a combination of federal, state, local, including property taxes at the lowest level since 1950. Oddly enough, we also have the largest amount of public debt since WWII, but that’s another story.

The average rate Americans have paid for taxes for the past 50 years has been 12%, and yet for 2009, American paid 9.2% total income for all taxes combined.

According to classical Keynesian economics, taxes should always be lowest during a recession, and never rise until the recession has passed; otherwise, we risk stopping recovery in its tracks. Some economists are saying that we are in recovery, but unemployment remains at 9 or 10%, so I don’t buy it, but that’s just me.

Here’s another thought: according to economists who have studied NJ property taxes, NJ residents do not pay the highest total state and local taxes in the country, despite what politicians claim at every election. We are actually about 28th highest. But the perception is that we have the highest property tax. I wish I had a dollar for every time our current governor claims New Jersey has the highest property taxes in the country – why, I could pay my taxes with it!

How is that possible? Its complicated. New Jersey is the second highest income state in the country (just behind Connecticut) but it’s the last state to rely wholly on property tax to pay for schools. Also, there is an economic principal that as nations (and groups) grow wealthier, they become accustomed to increasingly more expensive services from government. As a result, we have what are nearly the most expensive schools in the country, hence, the large percentage of property tax devoted to schools.

Other, not-so-wealthy states, such as Pennsylvania, pay for schools through a combination of property tax, county taxes, excise taxes, sales and use taxes, and so on. The total of those taxes states exceeds any savings in property taxes residents would otherwise contribute to a stand-alone school tax such as we have here, but taxpayers in Pennsylvania don’t happen to see their total tax bill in one statement.

However, every summer New Jersey taxpayers go ballistic when they see a property tax bill with that huge number, which for Montgomery is about $13,500, 91% of which is for schools. It’s no wonder such groups as the Tea Party, which offers nothing except a kind of annoyed whining noise, have gained traction.

We in New Jersey pay the 2nd or 3rd lowest fuel tax in the country. Higher fuel taxes contribute to higher cost of goods and services.

New Jersey’s sales tax is 7%. It’s higher in some other states. But, in many other states that tax is applied to food and clothing no matter what. Consequently, the total paid to the state exceeds what we pay in NJ. Granted, much of our sales tax seems illogical: why should there be in New Jersey more sales tax on a book from a book store than there is on a $2,000 suit of clothes? Why should there be more sales tax on a Big Mac than there is for a pound of caviar? The answer is that sales tax is regressive, penalizing lower incomes groups, which spend a greater proportion of their income on food and clothing. The wealthy can shelter a larger amount of their income in savings, real estate, and other tax-free instruments. Other states are not so progressive.

If you live in a state where all goods and services are taxed a nickel here and a nickel there, before you know it, you’re paying a higher total tax bill. But you’d have a lower property tax bill, such as Delaware, where the average property tax bill is $600 (yes, six hundred); and you wouldn’t see teachers paid at the level they are paid here.

Some economists have offered as an alternative, a value added tax at the national level, which results in taxes being paid all along the assembly and delivery line of a product, but which the end purchaser – you and I – only see as a more expensive price tag. A $1 bag of nails might end up costing $1.15, plus sales tax, for instance. That wouldn’t help at the state level unless everything purchased, including internet sales, was made and sold within that state. Should internet sales continue to be exempted? There is certainly a movement within most state departments of taxation to have at it. The pro-competition necessity that exempted them in the past has certainly disappeared from companies such as Amazon.com. Why not tax their sales?

By the way, if you want to see high property taxes, check out Connecticut, where homes, cars, boats, etc, are charged property taxes. There, my car, a three-year-old Subaru, would cost me another $500 a year. Don’t ask what my wife’s Prius would cost. It’s safe to say, the property tax would offset any savings on fuel. My sailboat would cost another $350 or so. Ouch! Take your hand out of my pocket!

In New Jersey, the perception outruns the reality. The fact is, the way New Jersey pays for school taxes is irrational and must change at the constitutional level if taxpayers want to feel that they aren’t being ripped off every year.

So, is 9.2% too much or too little?

Just in time for Tax Day - April 8

This year, for the first time, Social security will pay out more than it gets in revenues, as many older displaced workers, unable to find jobs and unemployed too long for benefits, are shoved into premature "retirement."

And news from the Washington are think-tank Tax Policy Center is that 47% of American taxpayers didn’t make enough last year that they had to pay taxes. The top 10%, those making more than $366,000 in 2006, paid 73% of total income taxes. A family of four, with children under 17, living on less than $50,000 has no income tax bill.

Making it seem worse for those in the middle class, the tax breaks for the wealthiest moved the burden onto the middle class, which is not sharing the benefit of Bush-era tax breaks.

All will have some sort of bill, such as Social security, federal payroll taxes, and various excise taxes on fuel, alcohol and so on. But almost half of working America gets a free ride.

On the other hand, only half of all federal receipts is from income tax. The rest is from other sources, such as the above, and loans from our overseas trading "partners."

Recovering From the Great Recession

March 17, 2010 - The Montgomery Township Economic Development Commission held an open forum on March 16 at the Elks Club, featuring guest speaker David Sandahl, an economist, a management consultant, and former mayor of Hopewell Township. Sandahl spoke on “Recovering from the Great Recession, getting it right this time.” He broke the problem down into three thoughts: the hole we are in did not happen last night; the hole we are in is very deep; it will take the private sector to get us out of it.

During his talk, he showed the way a series of policy decisions were made in Washington that had the affect of increasing risk and reducing accountability, from eliminating requirements to have reserves among top banks, to allowing banks to create and sale Credit Defaults Swaps. For instance, as a consequence of the vast numbers of failed banks during the Thirties, banks were forbidden from selling stocks and bonds, and other exotic instruments. Those strict banking laws were repealed with the Glass-Steagall Act, in 1997. “Bad decisions have had very bad consequences,” he said. He showed how over a ten year period, the result was less investment, higher imports, and more government.

Another interesting point he made was, if former President Carter’s energy policies had remained in place, our net imports of foreign oil be eliminated. Instead, we import 60% of our oil, up from 40%, competing with India and China, nations with a growing domestic auto usage. The decision to rescind those policies, a contributing factor to our negative trade balance, was clearly a mistake.

Standahl showed that Federal tax receipts are at the lowest number they have been at since 1950, largely as a consequence of unproven and flawed policy decisions, such as the decision to lower income